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<Title of Presentation> By: <Author Name>, <Organization>

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17th INTERNATIONAL CONFERENCE & EXHIBITION

ON LIQUEFIED NATURAL GAS (LNG 17)

Opportunities and Challenges of Using LNG

as Fuel in Small- to Medium-Size Power

Generation

By: Gauthier van Marcke & Alina Dumitrasc, Galway Group

April 18, 2013

17th INTERNATIONAL CONFERENCE & EXHIBITION ON

LIQUEFIED NATURAL GAS (LNG 17)

LNG Can Be an Attractive Alternative Fuel

for Small-Scale Oil-Fired Power Generation

• In many power markets, heavy fuel oil and diesel are

used as primary fuel sources for small-scale power

generation

• High fuel costs lead to high power cost, and have a

negative impact on local economies

• LNG is a potential alternative fuel – but need to solve

challenges of:

– Logistics

– Supply source

– Commercial structure

Case Study

Central America & Caribbean Region

Eastern

Caribbean

Northern

Caribbean

Northeastern

Caribbean

Western

Caribbean

Central America

(Caribbean)

Central America

(Pacific)

South

America

Power Generation Facilities Tend to Be

Relatively Small

Area45 - 100

MW

100 - 200

MW

200 - 300

MW

300 - 400

MW

400 - 500

MW

500 -

1000 MW

> 1000

MWTotal

Power

Generation

Capacity

(MW)

Potential LNG

Volume

(MTPA)

E. Caribbean 3 1 0 1 1 0 0 6 1,135 1.5

N. Caribbean 2 2 3 2 0 3 1 13 5,952 8.7

NE. Caribbean 1 1 0 0 1 0 0 3 644 0.9

W. Caribbean 0 2 0 0 0 0 0 2 261 0.4

CA (Caribbean) 0 1 1 1 0 0 0 3 840 1.1

CA (Pacific) 0 1 1 2 1 0 0 5 1,603 2.2

6 8 5 6 3 3 1 32 10,435 14.7

Fuel Oil Fired Power Generation Clusters

~ 80% of Facilities

~ 50% of Installed Capacity

Switching to LNG Delivers Several Key

Benefits

• Reduced environmental impact

– Lower carbon footprint and emissions

– Reduced opacity

• Lower operating costs

– Reduced maintenance expenses

– Potential for higher generation efficiencies

– Potentially cheaper fuel than HFO or Diesel

• Fuel supply diversity

– Mitigates risk of potential refinery strategy changes

– New source of fuel to replace/complement fuel oil

– Platform for additional natural gas uses

Price Spread Between Gas Price & Fuel-

Oil Offers Significant Switching Incentives

Historical Projections*

* Projections based on 3/19/2013 NYMEX forward curve for Henry Hub and Brent

$10.80

Avg

$14.86

Avg

Challenges with “Standard Scale” LNG

Logistics Have Hindered Progress • Shipping logistics

– Deep water access

– Tug support & other port services

• Terminal siting & costs

– Land requirements & availability

– High Working Capital

• ~ 125 days of inventory per cargo for

150 MW plant

– High up-front CAPEX

– High terminal unit cost can absorb much of the spread

• 150 MW Plant: LNG requirement ~24,000 MMBtu per Day

• LNG Terminal CAPEX: $250 MM (Simple) to $500 MM (Complex)

• Terminal Unit Cost Estimate: $4.30/MMBtu to $8.20/MMBtu

Small/Mid-Scale LNG Solutions Address

Logistical Challenges

• Small-scale ships or barges

– Reduce fuel inventory working capital

– May be able to use existing

port facilities

• Small Terminals (onshore or

floating)

– Lower CAPEX

– Smaller footprint

– Lower Unit Cost

Tanks

Vaporizers &

Utilities

But, Finding Near-term LNG Supplies

Continues to Be Challenging

• Access to “global” LNG market is limited

– Opportunities generally too small for “traditional” suppliers

– Liquefaction plants reluctant to accommodate small ships

– Competing with traditional Asian and European markets

• New regional small/mid-scale LNG plants are being

developed and are targeting regional rather than global

markets

• Potential for “Hub & Spoke” terminals to unload full-

sized cargoes and redistribute via smaller ship/barge(s)

Question Remains How to “Allocate”

Potential Fuel Savings Amongst Stakeholder

Historical Projections*

* Projections based on 3/19/2013 NYMEX forward curve for Henry Hub and Brent

$10.80

Avg

$14.86

Avg

Interests of Multiple Stakeholders Must Be

Addressed to Implement Small-Scale Project

Infrastructure

Provider(s)

Adequate returns

Term agreements to

support financing

Credit quality

LNG Buyer

Fuel cost savings to lower

power prices

Security of fuel supply

Justify conversion/

newbuild to natural gas

LNG Supplier

FOB Netbacks no worse than primary alternative markets

Credit quality customers Ability to integrate into

existing supply chain

“Integrator”

Integrator

“Glues the pieces together”

- Originates, structures,

and coordinates

commercial and technical

arrangements

Can be any one of the

stakeholders, or a 3rd party

developer

Case Study

Direct Distribution vs. Hub & Spoke Model

1,000 nm

1,500 nm

2,000 nm

2,250 nm

Direct Distribution from

USGC Plant

Hypothetical U.S. Small/Mid-Scale LNG Export Project

Case Study

Direct Distribution vs. Hub & Spoke Model

Hub & Spoke

Hypothetical U.S. Small/Mid-Scale LNG Export Project

Hypothetical Regional Transshipment Terminal

500 nm

750 nm

1,300 nm

1,700 nm

One of the Challenges for the Hub &

Spoke Model is Achieving Sufficient Scale

• High development & timing risk Potential significant equity risk – “build it and they will come”

Development risk and timing – “line up the dominoes”

Hub vs. Direct Deliveries Examples:

Streamlined Logistical Costs

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

$/M

MB

TU

300 MW Diesel Plant

500 nm from Hub; 2,000 nm from Liquefaction Plant

Hub “at Scale” (1,000 MW)

Hub Direct

~ 15% Substitution Value Improvement

Although Streamlining Logistics is Important,

Real Value Driver is Cost of Fuel

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

$/M

MB

TU

Hub Direct

300 MW Plant

500 nm from Hub; 2,000 nm from Liquefaction Plant

Hub “at Scale” (1,000 MW)

Key Takeaways

• LNG can become the “fuel of choice” for many small

power generators currently burning HFO and Diesel

• But need to solve several issues

– Logistics: Small/Mid-scale LNG shipping and terminal

solutions are readily available and can be economic

– Supply Sources: Small-scale liquefaction and “hub” projects

under development to serve smaller fuel-oil substitution

markets

– Commercial Structure: Interest of multiple stakeholders need

to be aligned and substitution value shared Need for

Integrator

Advisors and Investment Bankers to the Energy Industry

Thank you!